UB expert: Grocery stores 'appear to be reacting fast, and increasing upstream production volume and capacity'

Submitted

Tue, Mar 31st 2020 10:50 am

By the University at Buffalo

As the coronavirus pandemic reached American shores, grocery chains – both large and small – experienced an unexpected surge in demand for many products, triggered by a wave of panic buying on the part of consumers.

Not only have there been demand spikes for products like sanitizing wipes, cleaning agents and toilet tissue, but also for staple food items.

Nallan Suresh, Ph.D., UB Distinguished Professor of operations management and strategy in the University at Buffalo School of Management, says the industry was unprepared due to the leaner grocery supply chain model that has become the standard over the past 10-15 years.

“American grocery chains have been making impressive advances in supply chain management, offering plentiful and affordable supply of a wide variety of products to consumers while keeping very little in inventory,” he says. “Now, our food supply chains operate so efficiently, and without interruption, that we tend to take this miracle for granted.”

According to Suresh, the industry has been getting leaner, and grocery supply chains have been becoming more agile and responsive, thanks to best practices learned from hurricanes and other calamitous events. The industry now uses sophisticated forecasting and predictive analytics to anticipate changing customer demands and react swiftly.

But, he says, COVID-19 is different from natural disasters in a number of ways and is critically testing the reserve capacities of the food supply chain.

For example, because this is a global pandemic, surge-demand products cannot be met by shipping products from other, unaffected geographical regions as would happen during a localized disaster event. Restricted working hours, social distancing and a need for safer work environments are also imposing constraints on the ability to scale-up production.

“It is obvious the lessons learned from previous hurricane-like events have not been adequate,” Suresh says. “The industry clearly has been surprised by the unexpected demand surge, even though it had a three- or four-week lead time to prepare for this pandemic phase.

“But despite the added constraints in the current situation, grocery supply chains appear to be reacting fast, and increasing upstream production volume and capacity.”

Suresh says there are a few reasons you’re seeing empty shelves in grocery stores right now: unanticipated panic buying from consumers, the failure of not having forecasted this demand surge properly, and continued operation of a lean and efficient supply chain that was meant for steady-state environments.

“The net result has been a visible mismatch in demand and supply, and shortages of critical items for many customers, thanks to the hoarding behavior of other customers,” Suresh says.

Looking ahead, Suresh says grocery industry leaders need to reassure customers that they are highly unlikely to run into shortages in grocery supplies and limit the number of items each customer can purchase to deter speculation and gaming. Conversely, he says grocery supply chains are in a much better position than health care systems are for medical supplies like masks, ventilators and protective gear for medical workers and the general population.

“There appears to be plenty of surge capacity in grocery supply chains in terms of meeting aggregate demand increases,” Suresh says. “What we have witnessed in these initial weeks is merely short-term mismatches in demand and supply, resulting in empty shelves for many critical items.”

Nallan Suresh is a leading expert in supply chain management who has published widely in top academic journals and has been quoted in national media on manufacturing and operations management.

The UB School of Management is recognized for its emphasis on real-world learning, community and economic impact, and the global perspective of its faculty, students and alumni. The school also has been ranked by Bloomberg Businessweek, Forbes and U.S. News & World Report for the quality of its programs and the return on investment it provides its graduates. For more information about the UB School of Management, visit mgt.buffalo.edu.